The Pension Sharing Order: A Key Component in Divorce Proceedings

Divorce can be a stressful process, but dividing complex assets like pensions doesn’t have to add to that stress. One of the most common and straightforward ways to handle pensions during a divorce is through a pension sharing order, and it’s what we would recommend in the majority of cases.

What is a Pension Sharing Order?

A pension sharing order is a legal instrument used to divide pension assets between two parties in a divorce. It’s an essential part of many separations, even those that are amicable, because, unlike other assets, such as the family home, pension schemes need a court order for any changes to be made.

The pension sharing order outlines the portion of the pension that the ex-spouse is entitled to receive. In England and Wales, this amount is expressed as a percentage of the transfer value(s) of the pension(s) to be divided.

The Importance Of Pension Sharing Legislation

Pension sharing legislation, introduced in December 2000, was designed to ensure that individuals who would otherwise be left with little to no retirement benefits were adequately protected. Previously, it was not uncommon for both partners in a relationship to rely on the same pension. In cases such as these, when the relationship ended, the person who was not named as the pension holder could be at a significant disadvantage. Indeed, they could be left without an income in retirement.

The Process Of Issuing A Pension Sharing Order

The issuance of a pension sharing order begins with formal divorce proceedings and the submission of full financial disclosures from both parties. This involves both you and your ex-spouse providing documents regarding all existing pension arrangements you have.

Once the value of these assets is calculated and pooled, a fair division can be discussed. This might be a 50-50 split, but that is not guaranteed: factors, such as the earning potential of each party, or a large difference in ages, could cause one party to get a larger share of the pension than the other. Usually, however, the goal is typically to ensure an equal income in retirement for both parties.

If the transferee’s pension scheme allows transfers, funds from their former partner’s pension will be moved into their plan. If not, a new pension is created in the transferee’s name. The amount awarded is referred to as a pension credit, and the amount deducted from the other party is known as a pension debit. The court will instruct your pension provider to implement these plans.

When Should A Pension Sharing Order Be Used

A pension sharing order is almost always the simplest and easiest way to deal with pensions in a divorce. However, in some cases, particularly for younger couples with smaller pension funds, it may not be necessary. Only a court can make a pension sharing order, so when a pension is small and the parties in the divorce have plenty of time to make new plans for their eventual retirement, it may be quicker and easier to offset a pension against some other asset.

Nonetheless, when they are appropriate, pension sharing orders are the best way to provide a clean break between you and your ex’s finances. Once pensions are divided, or a new pension is created for the receiving spouse, you won’t have to worry about it again. 

If you would like to learn more about whether a pension sharing order would work for you, contact us. Our experienced team of legal experts would be happy to discuss your case personally.